Difficulty: Easy

Average Score: 100%

Trade and Opportunity Costs
This passage and table describe the opportunity costs faced by two countries.
1 The countries of Grand Coast and Toland are trading partners. The two main goods
traded are timber and fish. Every year the ministers of trade from each country
attend an international conference to discuss issues related to foreign trade and
decide how each country should specialize. The table provides economic data for
one year.

In Grand Coast, what is the opportunity cost of one unit of fish?

Rationale

In Grand Coast, the opportunity cost of one unit of fish is ½ unit of timber.

The opportunity cost represents what is forgone to produce an additional unit of a good. In this scenario, Grand Coast sacrifices ½ unit of timber for each unit of fish produced, indicating the trade-off in their production choices.

A (½ unit of timber) CORRECT

This choice accurately reflects the opportunity cost of producing one unit of fish in Grand Coast. By choosing to allocate resources towards fish production, Grand Coast forgoes the production of ½ unit of timber, demonstrating the trade-off involved in their economic decisions.

B (5 units of timber) YOUR ANSWER

This option exaggerates the opportunity cost associated with fish production. It incorrectly implies that producing one unit of fish would require sacrificing 5 units of timber, which does not align with the provided economic data indicating a much lower trade-off.

C (2 units of fish) YOUR ANSWER

Choosing 2 units of fish as the opportunity cost is misleading, as it suggests that in producing one unit of fish, Grand Coast must give up two units of its own fish. This choice misrepresents the concept of opportunity cost, which should relate to timber in this context.

D (8 units of fish) YOUR ANSWER

This option is also incorrect, as it implies that producing one unit of fish would mean sacrificing eight units of fish. This is nonsensical since one cannot produce more of the same good at the cost of itself; thus, it does not represent a valid opportunity cost.

Conclusion

Understanding opportunity costs is crucial in trade and economics, as it highlights the sacrifices made when choosing one good over another. In the case of Grand Coast, the opportunity cost of producing one unit of fish is accurately represented as ½ unit of timber, illustrating the fundamental economic principle of trade-offs in resource allocation.